This paper considers the design and performance of auction
mechanisms used to deploy renewable energy in three
emerging economies: Brazil, China, and India. The analysis
focuses on the countries’ experience in various dimensions,
including price reductions, bidding dynamics, coordination
with transmission planning, risk allocation strategies,
and the issue of domestic content. Several countries have
turned to public competitive bidding as a mechanism for
developing the renewable generation sector in recent years,
with the number of countries implementing some sort of
auction procedure rising from nine in 2009 to 36 by the
end of 2011 and about 43 in 2013. In general, the use
of auctions makes sense when the contracting authority
expects a large volume of potentially suitable bids, so that
the gains from competition can offset the costs of implementation.
A study of the successes and failures of the
particular auction design schemes described in this paper
can be instrumental in informing future policy making.

Promoting Renewable Energy through Auctions: The Case of India

India’s national- and state-level
experience with auctions of
solar energy products both
large and small attests to the
flexibility and adaptability of
auction mechanisms. Under the
National Solar Mission, auctions
have been implemented with
good results in a variety of
settings. Lessons include the
importance of clear ideas about
key goals and objectives—and
about areas where sacrifices
can be made. Experience
in several states has also
underlined the importance of
regulatory stability.

Promoting Renewable Energy through Auctions: The Case of Brazil

The Brazilian experience
with wind energy auctions
illustrates that even carefully
designed policies often
must be reconsidered in
the light of a complex and
changing environment. Many
considerations need to be
taken into account to ensure
competitive prices while
also delivering the required
renewable energy supply.

Promoting Renewable Energy through Auctions: The Case of China

Although feed-in tariffs are
now the cornerstone of
China’s renewable energy
policy, auctions have played
and continue to play a role
in identifying market prices
for renewable energy in the
country. Experience with the
auctioning of wind and solar
concessions enabled the
Chinese authorities to modify
auctions over time to yield
accurate information about
the costs of generation from
renewable sources, allowing
them to set feed-in tariffs at
efficient levels.

Promoting Renewable Energy through Auctions

Auctions in various forms are
being used to promote the
generation of electricity from
renewable sources. Properly
structured auctions can avoid
the disadvantages feed-in
tariffs and renewable purchase
obligations. Moreover, they
offer the best of both of these
early mechanisms, providing
stable revenue guarantees for
investors while also avoiding
the risk of overbuilding. They do
this by determining both price
and quantity in advance.

A Natural Fit: Electricity-Gas Integration Challenges in South America

PSR publishes a paper on Electricity-Gas Integration Challenges in South America. The paper describes the natural gas resources and infrastructure in Brazil and Chile, their present participation in electricity generation, the applicable gas industry regulations, and the natural gas system’s interactions with the electricity sector, assessing how the adequacy of natural gas, electricity, and renewable resources may evolve. Pricing schemes for natural gas are also discussed, including how the variability of LNG prices affects electricity prices. Finally, the article will also address the regulatory and system operation changes made to ease the integration of gasfired plants and the remaining hurdles to be overcome.

This paper considers the design and performance of auction mechanisms used to deploy renewable energy in three emerging economies: Brazil, China, and India. The analysis focuses on the countries’ experience in various dimensions, including price reductions, bidding dynamics, coordination with transmission planning, risk allocation strategies, and the issue of domestic content. Several countries have turned to public competitive bidding as a mechanism for developing the renewable generation sector in recent years, with the number of countries implementing some sort of auction procedure rising from nine in 2009 to 36 by the end of 2011 and about 43 in 2013. In general, the use of auctions makes sense when the contracting authority expects a large volume of potentially suitable bids, so that the gains from competition can offset the costs of implementation. A study of the successes and failures of the particular auction design schemes described in this paper can be instrumental in informing future policy making.

We present a new methodology to support an energy trading company (ETC) to devise contracting strategies under an optimal risk-averse renewable portfolio. The uncertainty in the generation of renewable energy sources is accounted for by exogenously simulated scenarios, as is customary in stochastic programming. However, we recognize that spot prices largely depend on unpredictable market conditions, making it difficult to capture its underlying stochastic process, which challenges the use of fundamental approaches for forecasting. Under such framework, industry practicesmake use of stress tests to validate portfolios.We then adapt the robust optimization approach to perform an endogenous stress test for the spot prices as a function of the buy-and-sell portfolio of contracts and renewable energy generation scenarios. The optimal contracting strategy is built through a bilevel optimization model that uses a hybrid approach, mixing stochastic and robust optimization. The proposed model is flexible to represent the traditional stochastic programming approach and to express the ETC’s uncertainty aversion in the case where the price distribution cannot be precisely estimated. The effectiveness of the model is illustrated with examples from the Brazilian market, where the proposed approach is contrasted to its stochastic counterpart and both are benchmarked against observed market variables.

Electricity auctions in South America: Towards convergence of system adequacy and RES-E support

Regulatory reforms of the electricity industry in South America have always been prompted by the need of attracting enough investment to cover the fast-paced demand growth. In order to achieve this goal, the countries in the region which in the eighties and early nineties opted for market-oriented schemes, have rebuilt in the last decade their regulatory frameworks around long-term auctioning. These new mechanisms, initially implemented to attract investment in any sort of conventional generation technology so as to ensure the system adequacy, are also being increasingly used to bring in non- conventional renewable energy resources. These schemes have been until now run in parallel, but the steep learning curve of Renewable Energy Sources for electricity (RES-E) technologies is apparently opening the door to the implementation of new tendering procedures open to all kinds of generation technologies. In this article, we review the auction mechanisms for new generation implemented in South America. We argue that although the first impression might lead to the conclusion that conventional and RES-E technologies are in some cases close and even ostensibly competing in the same auctions, the fact is that the full convergence is still far to happen, as the rules and products applied to the different technologies differ significantly.

A Mean-Variance Optimization Approach to the in Transmission-Constrained Systems

We propose a general modeling framework that, under a set of assumptions, allows the representation of problems involving the construction of portfolios of renewable generators, with explicit modeling of the effects of intermittency and variability of generation over the loading of transmission facilities, as mean-variance portfolio optimization problems. The proposed formulation can be solved with classical mathematical programming techniques with little computational effort and may be used for rapid assessment and screening of renewable portfolio options and of operating scenarios, and for the computation of Pareto frontiers of efficient portfolios.

Operation and Maintenance Contracts for Wind Turbines

Owners of wind parks often outsource operation and maintenance (OeM) of their assets. This chapter addresses the fundamental negotiating issues of wind turbine OeM contracts. We develop a conceptual mathematical framework to support the analysis and design of OeM contracts. The framework is used to investigate mechanisms through which incentives perceived by OeM contractors can be aligned with the objectives of wind park owners in both the short and the long terms. This alignment ensures that the negotiated contracts are part of a general strategy for maximizing the value extracted from wind turbines over their lifetime.

Analysis, under an energetic perspective, of the maximum insertion of wind power into the brazilian electricity mix

The objective of this paper is to present a study of wind power insertion into the Brazilian Electric System under an energy perspective, assuming an expansion of hydroelectric generation based on run-of-river plants. We evaluate different scenarios of long-range wind power insertion, by simulating the hydrothermal dispatch, considering the stochasticity in flows and in wind energy production, using four key metrics to indicate the ideal maximum insertion of wind generation into the system: (i) the mean electricity spot price (“PLD”); (ii) the 90% percentile of the PLD; (iii) the risk of deficit; and (iv) the probability of thermoelectric dispatch to meet the peak.

Stategies for reactive power support by distributed generation: connection requirements and supply adequacy

It is known that high levels of penetration of distributed generation (DG) in the distribution system represent a challenge to utilities regarding compliance to admissible operating conditions throughout their networks. Of particular interest to this paper are challenges related to elevated feeder voltage due to intense injection of real power at times of low loading of the network. Ensuring that DG is able to contribute to voltage control by offering reactive power support is an alternative to reduce the impacts of high levels of penetration of these resources on network operating conditions. The definition of connection requirements for distributed generators with inverters determines the possibility of implementing different reactive power support strategies, consequently determining to what extent these generators can contribute to ensuring adequacy of power supply. In this paper, the expression reactive power support strategy is used in reference to the set of commands and parameters that determine the reactive power output of the all generators in the distribution system. Connection requirements and reactive power support strategies for distributed generation are a topic of interest to distribution utilities. It has been the topic of recent discussions in Brazil, after the regulator introduced changes into Module 3 of the Electrical Energy Distribution Proceedings in 2012. The design of connection requirements and reactive power support strategies is a complex problem. In this paper, we take a first step towards the development of an optimization framework for the design of connection requirements and reactive power support strategies: we propose a mathematical formulation for the problem of optimizing the reactive power support strategy. We formulate this problem as a non-linear program, where the set of commands and parameters for each of the sets of connection requirements are decision variables. Stochasticity in the output of distributed generations and in the demands within the network are accounted for.

A quantitative assessment of alternative operational policies for the Brazilian hydrothermal system: an implicit cost of deficit and implicit discount rate approach

In the light of recent developments in the Brazilian market and attempts to introduce risk aversion parameters to the optimization models used in the hydrothermal dispatch problem, a technical committee has carried out detailed market simulations in order to map out consequences of adjusting the core parameters of certain risk aversion methodologies. In this paper, the authors raise the concern that similar efforts have not been extended to other extremely important parameters of the policy space, and address this issue by carrying out a similar extensive exploration in order to evaluate the effect of modifying the optimization model’s social cost of deficit (representing a weighing of the deficit cost function relative to financial costs incurred from the system operation) and its discount rate (representing a time preference parameter) in the market operation. The authors have opted to present in this paper the analysis of these two parameters exclusively from an “implicit” lens, in contrast with the approach of explicitly determining those parameters based on econometric studies. Because all of the relevant information that is used to determine the optimal policy is already encoded in the variables and parameters of the optimization problem, the market simulations are in practice more a visualization tool than a true method to seek an optimal solution. As a consequence, many of the choices with respect to the analysis are intertwined – the delimitation of the policy space to be explored, the selection of a supply-demand scenario for the market simulation, and the main metrics to evaluate in the policy selection stage. For that reason, these ex ante choices are the object of extensive preliminary considerations in this paper. The candidate policies explored in this paper are represented by a two-dimensional space determined by the parameters ?? and ?? – which, as described above, are associated to the implicit cost of deficit and the implicit discount rate respectively – and the market simulations were carried out based on a static system configuration of the Brazilian system produced by EPE, reflecting a predetermined longterm supply-demand balance. The results shows how the two main metrics selected for the purpose of this paper – the financial cost function ?? and the deficit cost function ?? – are affected by the choice of parameters ?? and ??, and how certain types of “risk averse” policies could be emulated simply within this policy space. The shape of the resulting scatterplot of the candidate policies is discussed, with further considerations being made with regards to the interaction between the two parameters and with regards to the interaction between the market operation and market expansion problems.

A Mean-Variance Optimization Approach to the Development of Portfolios of Renewable Generation in Transmission-Constrained Systems

We propose a general modeling framework that, under a set of assumptions, allows the representation of problems involving the construction of portfolios of renewable generators, with explicit modeling of the effects of intermittency and variability of generation over the loading of transmission facilities, as mean-variance portfolio optimization problems. The proposed formulation can be solved with classical mathematical programming techniques with little computational effort and may be used for rapid assessment and screening of renewable portfolio options and of operating scenarios, and for the computation of Pareto frontiers of efficient portfolios.

In a competitive environment with bid-based markets, power generation companies desire to develop bidding strategies that maximize their revenue. In this paper we ask: What approaches and methodologies have been used to model the bidding problem for hydro-electric producers? We present the problem’s developments over time and, through reviewing different variants of the problem, progressively build to the case in which the agent is a price-maker hydro-electric producer. In each variant of the bidding problem, we examine how the approaches used to solve it may or may not be applicable to other variants. Last, for the price-maker hydro-electric producer’s bidding problem, we recognize the most recent developments and illuminate a path for future efforts.

FACTS and D-FACTS: The Operational Flexibility Demanded by the Transmission Expansion Planning Task with Increasing RES

There are several reasons to explain why transmission system loading is less than 100%. These reasons include: (i) reliability, (ii) uncertainties associated with the demand growth forecast and (iii) different dispatch scenarios due to Renewable Energy Sources (RES), i.e., hydroelectricity, modern biomass, wind and solar power. The combination of these facts leads to high investments in the transmission systems to meet different dispatch scenarios and low loading throughout the year.
In hydrothermal systems as in the case of Brazil, the economic dispatches vary throughout the year due to the hydrology associated to the rivers located in different regions of the country. Therefore, the transmission expansion plan must be robust enough to meet the demand with completely different dispatch scenarios throughout the year.
Furthermore, the aforementioned issue concerning transmission expansion planning was historically not a significant problem for the United States and most European countries. However, with the high penetration of intermittent renewables, such as wind and solar, the transmission expansion planning has become a task of extreme technical and economic importance, as it already is for Brazil.
Recent technological advances have revealed new equipment that has as primary objective to increase the flexibility and controllability of the transmission system:
• FACTS (Flexible AC Transmission Systems): equipment based on power electronics or other static technologies, which aim to directly control physical quantities of the transmission system, primarily to control voltage or power flow;
• Distributed Series Reactors (DSRs), a distributed FACTS (D-FACTS) power flow controller which operates by varying line reactance. DSRs are attached concentrically around the conductor.
Adding FACTS and D-FACTS to the system allows greater control of the active power flow and greater operational flexibility to accommodate different dispatch scenarios.
The main purpose of this paper is to analyse these impacts in transmission expansion planning and operation and also the associated financial impact. To achieve this goal, case studies based on the Brazilian system with different dispatch scenarios will be utilized to compare the available technologies to realize the transmission expansion planning task. The expansion plans will be compared based on operational performance and total investments.

Lessons learned from the auction-based approach to integrate wind generation in the Brazilian electricity market

Since 2009 Brazil has been using energy contract auctions to integrate wind energy in its power system. Wind energy has been participating in both technology-specific auctions (where wind plants compete among themselves) and in technology-neutral auctions in which it competes with other technologies, such as natural gas. In the light of a renewed worldwide debate on the role of auctions as a mechanism to foster the development of non-conventional renewable generation (as opposed to other mechanisms, such as administratively-designed feed-in tariffs and/or renewable energy certificates), an in-depth analysis of the Brazilian experience could provide powerful insights for future applications. The results of the Brazilian auctions have been undeniably impressive: they will be responsible for increasing the wind capacity in the country nine-fold between 2009 and 2016, and has allowed distribution companies to contract this energy at prices as low as 50 US$/MWh. On the other hand, as the commercial operations date for the newly contracted plants approaches, other issues and concerns arise – especially with regards to the possibility of systematic delays and/or underperformance. This paper aims to carry out an unbiased evaluation of the Brazilian auctions’ results so far, and to crossevaluate them with elements of the auction design in order to verify our hypothesis that the policymakers’ choices can have a central role in magnifying inherent strengths and weaknesses of the auction scheme. We expect our analysis to provide valuable insights to the task of designing energy contract auctions, in Brazil or elsewhere.